Can competing groups find a way to share land?

by Fred E. Foldvary, Senior Editor, April 8, 2009

Economics classes are turning to videos, including songs and stories, for lessons, so here is a script for a video on the margin of production.

We start with a happy village populated by Folks who cultivate corn in plots of land which grow the same amount for an equal application of labor and tools.

One day, a new people arrive, the Barbos. They need land too, to grow crops, but the Folks say they were there first. Go yonder, the Folks tell the Barbos. “Beyond the margin of production is unused land you can settle on.”

What is the margin? they ask.

It is the least productive land in use, say the Folks. Beyond that is submarginal land, which is less productive, and not in use. You may have it rent-free.

Our income will be lower there than yours, said the Barbos.

Thats right, said the Folks. We were here first, so this better land is ours. It may not seem fair to you, but it is first-come first-served.

Why that rule? asked the Barbos.

Thats just the way it is, answered the Folks. We Folks are being very generous, because we could have claimed the submarginal land too and not let you use any. Be grateful.

The Barbos settle in the submarginal land, which then becomes the new margin. Their wages are lower than the wages of the Folks. But now if a farmland owner in the Folks land wants to hire labor, he can hire a Barbos, since they have a lower wage. So then competition among workers brings down the wage of the Folks workers to that of the Barbos.

I hate the Barbos! said Mraklochk, one of the Folks. They brought down our wages!

And rent is up! complained another of the Folks. My cousin Chkungka has been renting land from Ungachku the landlord to farm on, and the rent went up!

Why? asked Gurklam, another Folks guy.

If the wage is lower, more of the output goes to rent, he answered

Rent up and wages down! I hate the Barbos! Mraklochk exclaimed.

Then Pruchklu came into town with a strange-looking contraption. It is a new and better plow, he explained. “It will double production. I will sell them for two bushels, and it is worth it, because when production doubles, even after paying for the plow, you will have higher wages.

All the Folks farmers bought a plow, but noticed that the plow wears out after the harvest, so each time corn is planted, one needs a new plow. But it is worth that to double the output.

Chkungka was unhappy. Why the frown? asked Mraklochk.

My output doubled, and I did get higher wages, but the rent went up even more, so most of the gain went to pay Ungachku the higher rent!

Its those Barbos! said Mraklochk. I hate the Barbos!

But the Barbos were also unhappy. One Barbos named Max exclaimed: It is not fair for the Folks to get most of the wealth while we Barbos stay poor. I say we form an army and have a revolution! Let us take over the lands of the Folks!

The Folks became alarmed. They elected a leader named Conserchgu. This is our land, he exclaimed. Let us defend our land from those evil Barbos!

I hate the Barbos! said Mraklochk. Lets go fight them!

Another Folks man named Hankchgu pleaded for a third way. The Barbos are angry because we sent them to the submarginal land. But that did not do the Folks workers any good. Instead of fighting, why dont we all share the land equally. Let us collect the rent that is soaking up the output and share it equally.

No! said Ungachku the landlord. It is my property. You want to steal it! Thief!

Maybe the first-come first-served was not such a good rule, said Hankchgu. Maybe you are the thief taking what properly belongs to us all.

You want to overturn all our traditions! said Ungachku the landlord. You are a Barbos lover!

Barbos lover! Barbos lover! said a mob of Folks.

I hate the Barbos! said Mraklochk.

The Barbo Max had a secret meeting with Hankchgu of the Folks. Let us join forces and defeat Conserchgu and his mob, and then we can all live in equality ever after, said Max.

Agreed, said Hankchgu.

But Conserchgu and his army came and killed Max and put Hankchgu in prison for a year.

When Hankchgu was released, a small number of Folks said they agreed with Hankchgu.

The workers still have low wages, while the landlords get more rent just because the margin went to less productive land and we got better plows, said Hankchgu. We lost for now, but let us keep the idea of sharing the rent alive, and try to persuade others, and then just maybe, the Folks and the Barbos will one day be able to live in prosperity and harmony.

The end

– Fred Foldvary

Copyright 2008 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.

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3 Responses to Can competing groups find a way to share land?

“And rent is up!” complained another of the Folks
Where is the logic in this? Ungachku is a land owner and employer, not a worker, if wages have gone down Ungachkus income has effectively increased. There is no reason for him to also increase the rents.

And the reason given:
“If the wage is lower, more of the output goes to rent,” he answered
is meaningless.

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Arts & Letters

Geonomics is …

a new policy from a new perspective. Once your worldview shifts — so that vacant city lots are no longer invisible — then epiphany. “Of course! Why didn’t I see it before?” Once you do see the emptiness and what damage it does, how can you ever go back to the old paradigm?

what you do when you see economies as part of the ecosystem, following feedback loops and storing up energy. Surplus energy – fat or profit – enables us to produce and reproduce. To recycle society’s surplus, the commonwealth, geonomics would replace taxes with land dues (charged to users of sites and resources, including the EM spectrum, and extra to polluters), and replace subsidies with rent dividends to citizens (a la Alaska’s oil dividend). Without taxes and subsidies to distort them, prices become precise, reflect accurately our costs and values; then, motivated by no more than the bottom line, both producers and consumers make sustainable choices. While no place uses geonomics in its entirety, some places use parts of it, most notably a shift of the property tax off buildings, onto locations. Shifting the property tax drives efficient use of land, in-fills cities, improves the housing stock, makes homes affordable, engenders jobs and investment opportunities, lowers crime, raises civic participation, etc – overall it makes cities more livable. Geonomics – a way to share the bounty of nature and society – is something we can work for locally, globally, and in between.

a neologism for sharing “rent” or “social surplus” – the money we spend on the nature we use. When we buy land, such as the land beneath a home, we typically pay the wrong person – the homeowner. Instead, since land cost us nothing to make and is the common heri-tage of us all, rather than pay the owner, we should pay ourselves, our neighbors, our community. That is, we should all pay land dues to the public treasury, then our government would pay us land dividends from this collected revenue. It’s similar to the Alaska oil dividend, almost $2,000 last year. Indeed, the annual rental value of land, oil, all other natural resources, including the broadcast spectrum and other government-granted permits such as corporate charters, totals several trillion dollars each year. It’s so much that some could be spent on basic social services, the rest parceled out as a divi-dend, as Tom Paine suggested, and taxes (except any on natural rents) could be abolished, as Thomas Jeffer-son suggested. Were we sharing Earth by sharing her worth, territorial disputes would be fewer, less intense, and more resolvable.

a POV that Spain’s president might try. A few blocks from my room in Madrid at a book fair to promote literacy, Sr Zapatero, while giving autographs and high fives to kids, said books are very expensive and he’d see about getting the value added tax on them cut down to zero. (El Pais, June 4; see, politicians can grasp geo-logic.) But why do we raise the cost of any useful product? Why not tax useless products? Even more basic: is being better than a costly tax good enough? Our favorite replacement for any tax is no tax: instead, run government like a business and charge full market value for the permits it issues, such as everything from corporate charters to emission allowances to resource leases. These pieces of paper are immensely valuable, yet now our steward, the state, gives them away for nearly free, absolutely free in some cases. Government is sitting on its own assets and needs merely to cash in by doing what any rational entity in the economy does – negotiate the best deal. Then with this profit, rather than fund more waste, pay the stakeholders, we citizenry, a dividend. Thereby geonomics gets rid of two huge problems. It replaces taxes with full-value fees and replaces subsidies for special interests with a Citizens Dividend for people in general. Neither left nor right, this reform is what both nature lovers and liberty lovers need to promote, right now.

a discipline that, compared to economics, is as obscure as Warren Buffett’s investment strategy, compared to conventional investment theory, about which Buffett said, “You couldn’t advance in a finance department in this country unless you taught that the world was flat.” (The New York Times, Oct 29). The writer wondered, “But why? If it works, why don’t more investors use it?”
Good question. Geonomics works, too. Every place that has used it has prospered while conserving resources. Yet it remains off the radar of many wanna-be reformers. Gradually, tho’, that’s changing. More are becoming aware of what geonomics studies – all the money we spend on the nature we use. Geonomics (1) as an alternative worldview to the anthropocentric, sees human economies as part of the embracing ecosystem with natural feedback loops seeking balance in both systems. (2) As an alternative to worker vs. investor, it sees our need for sites and resources making those who own land into landlords. (3)As an alternative to economics, it tracks the trillions of “rent” as it drives the “housing” bubble and all other indicators. And (4) as an alternative to left or right, it suggests we not tax ourselves then subsidize our favorites but recover and share society’s surplus, paying in land dues and getting back “rent” dividends, a la Alaska’s oil dividend. Letting rent go to the wrong pockets wreaks havoc, while redirecting it to everyone would solve our economic ills and the ills downstream from them.
People must learn to stop whining so much and feel enough self-esteem to demand a fair share of rent, society’s surplus, the commonwealth.

a scientific look at how we divvy up the work and the wealth, how some of us end up with too much or too little effort or reward. That’s partly due to Ricardo’s Law of Rent, showing how wasteful use of Earth cuts wages. And it’s partly due to how a society’s elite runs government around like water boys, dishing out subsidies and tax breaks. While geonomists look political reality right in the eye, without blinking, conventional economists flinch. When Paul Volcker, ex-chief of the Federal Reserve, moved on to a cushy professorship at Princeton cum book contract, the crush of deadlines bore down. So Volcker asked a junior associate to help with the book. The guy refused, explaining that giving serious consideration to policy would ruin his academic career. The ex-Fed chief couldn’t believe it and asked the department chair if truly that were the case. That head honcho pondered the question then replied no, not if he only does it once. And economics was AKA political economy!

about the money we spend on the nature we use. It flows torrentially yet invisibly, often submerged in the price of housing, food, fuel, and everything else. Flowing from the many to the few, natural rent distorts prices and rewards unjust and unsustainable choices. Redirected via dues and dividends to flow from each to all, “rent” payments would level the playing field and empower neighbors to shrink their workweek and expand their horizons. Modeled on nature’s feedback loops, earlier proposals to redirect rent found favor with Paine, Tolstoy, and Einstein. Wherever tried, to the degree tried, redirecting rent worked. One of today’s versions, the green tax shift, spreads out of Europe. Another, the Property Tax Shift, activists can win at the local level, building a world that works right for everyone.

not a panacea, but like John Muir said, “pull on any one thing, and find it connected to everything else.” Recall last month’s earthquake in El Salvador. We felt it and its formidable after-shocks in Nicaragua. Immediately afterwards, my host nation, one of the poorest in the Western Hemisphere, sent aid to its Central American neighbor. The Nica newspapers carried photos of the devastation. They showed that the cliff sides that crumbled had had homes built on them while the cliffs left pristine withstood the shock. Could monopoly of good, safe, flat land be pushing people to build on risky, unstable cliffs? If so, that’s just one more good reason to break up land monopoly. What works to break up land monopoly, history shows, is for society to collect the annual rental value of the underlying sites and resources. That’d spur owners to use level land efficiently, so no one would be excluded, forced to resort to cliffs. To prevent another man-induced landslide is yet another reason to spread geonomics.

the study of the money we spend on the nature we use. When we pay that money to private owners, we reward both speculation and over-extraction. Robert Kiyosaki’s bestseller, Rich Dad’s Prophecy, says, “One of the reasons McDonald’s is such a rich company is not because it sells a lot of burgers but because it owns the land at some of the best intersections in the world. The main reason Kim and I invest in such properties is to own the land at the corner of the intersection. (p 200) My real estate advisor states that the rich either made their money in real estate or hold their money in real estate.” (p 141, via Greg Young) When government recovers the rents for natural advantages for everyone, it can save citizens millions. Ben Sevack, Montreal steel manufacturer, tells us (August 12) that Alberta, by leasing oil & gas fields, recovers enough revenue to be the only province in Canada to get by without a sales tax and to levy a flat provincial income tax. While running for re-election, provincial Premier Ralph Klein proposes to abolish their income tax and promises to eliminate medical insurance premiums and use resource revenue to pay for all medical expense for seniors. After all this planned tax-cutting and greater expense, they still expect a large budget surplus. Even places without oil and gas have high site values in their downtowns, and high values in their utility franchises. Recover the values of locations and privileges, displace the harmful taxes on sales, salaries, and structures, then use the revenue to fund basic government and pay residents a dividend, and you have geonomics in action.

the annoying habit of seeing the hand of land in almost all transactions. In geonomics we maintain the distinction between the items bearing exchange value that come into being via human effort — wealth — and those that don’t — land. Keeping this distinction in the forefront makes it obvious that speculating in land drives sprawl, that hoarding land retards Third World development, that borrowing to buy land plus buildings engorges banks, that much so-called “interest” is quasi-rent, that the cost of land inflates faster than the price of produced goods and services, that over half of corporate profit is from real estate (Urban Land Institute, 1999). Summing up these analyses, geonomists offer a Grand Unifying Theory, that the flow of rent pulls all other indicators in its wake. Geonomics differs from economics as chemistry from alchemy, as astronomy from astrology.